Deal of the Week: Outlook improves for office investors

Lingerfelt CommonWealth Partners﻿ has acquired Burns & McDonnell Plaza, a 14-story office building at 1700 West Loop, for $52 million.﻿

Photo: Lingerfelt CommonWealth Partners

Lingerfelt CommonWealth Partners has made its first Houston acquisition in a$52 million deal that signals a rosier outlook among office investors.

The Richmond, Va.-based commercial real estate investment firm acquired Burns & McDonnell Plaza, a 14-story building at 1700 West Loop, from Bridge Investment Group Partners, which had owned it since 2012. The building is north of San Felipe next to the Houston Marriott West Loop in the Galleria area.

"We believe that the timing is good on the office product and that Houston has turned the corner," said Jay Kraft, senior vice president with Lingerfelt. "We believe that the market is strengthening."

The 272,941-square-foot building took the Burns & McDonnell name a few years ago after a renewal and expansion by the Kansas City, Mo.-based engineering, architectural and consulting firm. It is 81 percent leased.

Avison Young will handle marketing and leasing for the building, which has more than two floors of space available. Commonwealth Commercial Partners, an affiliate of Lingerfelt, will handle property management.

So far this year, investors have pumped nearly $1.3 billion into Houston office properties, according to commercial real estate firm JLL. That eclipses the $330 million spent on local office properties in all of 2016 and is on track to surpass the $2 billion reached in 2015.

"Investors believe that the worst is behind us in the energy field," said Rudy Hubbard, managing director of JLL.

Some of the larger transactions include Spear Street Capital's purchases of 5 Houston Center, 515 Post Oak and Energy Center I, Woodbranch Investment's acquisition of BP's Helios Plaza, Whitestone REIT's purchase of BLVD Place and Parkway's sale of a stake in Greenway Plaza.

Investors seeking to buy buildings at bargain prices after the drop in oil prices, and subsequent rise in office vacancies, didn't find as many options as they'd expected, according to JLL.

"There just weren't those deals available," said Kevin McConn, a senior vice president with JLL.

Buyers, armed with a sense of cautious optimism, are bringing their prices up, although the levels are below the recent peak in 2014, McConn said.

"There's been a large bid-ask spread in the last couple of years," McConn said. "We're starting to see that tighten a little bit."

Cap rates, which indicate the yield on an investment, have risen to an average of 8 percent for Houston office buildings, compared with 6.7 percent nationally, according to Real Capital Analytics.

Lingerfelt CommonWealth Partners, which owns approximately 6 million square feet of office, industrial, retail and hotel properties, aims to add other Houston properties to its portfolio.

Katherine Feser covers a variety of subjects for the Houston Chronicle Business section. She coordinates some of the paper's most popular special sections, including the Chronicle 100, Home Price Survey, and Top Workplaces. She compiles many of the staples of the section, including the daily markets page, People in Business, event listings and real estate transactions.